😶🌫️ why can't-nabis we?
layered regulation of weed as a model for competition
This edition of Regs to Riches is co-authored with Dan Skilleter, the Director of Policy at Social Capital Partners. Dan was previously the Manager of Policy at the Alcohol and Gaming Commission of Ontario, and we previously worked together at Queen’s Park.
Banking and telecommunications seem to be the two most popular entry points to conversations about competition in Canada. But banking is additionally regulated by the Banking Act, and telecommunications by the Canadian Radio-television and Telecommunications Commission (CRTC). There are extra legislative layers that inform their competitive environments.
Cannabis is uniquely concurrently regulated by both the provinces and the feds.
In Canada, the responsibility for recreational cannabis retail belongs to the provinces. The federal Cannabis Act maintains Canada’s jurisdiction over the production of cannabis and the sale of medical cannabis, but when it comes to picking up a recreational pre-roll of lemon kush: over to you, provinces.
In an Ontario context, this responsibility for cannabis retail belongs to the Alcohol and Gaming Commission of Ontario (AGCO - BTW they never updated their name to reflect that they took on responsibility for cannabis years ago, so it’s sort of confusing). They’re entrusted with administering the Cannabis Licence Act, 2018. The AGCO has some leeway in interpreting the Act and its regulations but as any regulator, they are primarily policy-takers, not makers.
Tucked away in the Act that they administer sits a single provision that generates a lot of contention across the sector because it appears to turn the AGCO into something of a regulator of competition.
Section 36(1)(a) of the Act is a prohibition against cannabis retailers receiving “inducements” for the purpose of increasing sales. This basically means that retailers can’t take bribes from the sector to promote any particular type of product. Figuring out what exactly constitutes a bribe or a “commercially reasonable contract,” is where things get…murky.
The AGCO has enshrined this legislative prohibition into its Registrar's Standards for Cannabis Retail Stores, which serves as its public facing document of requirements. Standard 6.4 states: Licensees may not accept or request material inducements from Licensed Producers, their representatives, or suppliers of cannabis accessories.
This prohibits a practice that is beyond common (and perfectly legal) in basically all other retail environments. Ever wonder why you have to bend over and reach for your favourite brand of toilet paper on the bottom shelf at your local Loblaws? It’s probably because they’re not willing (or more likely, able) to pay for it to be at a comfortable eye level. The fees paid by suppliers for A+ shelf space are typically referred to as ‘listing fees’ or ‘shelving fees’. And while they’re commonplace, suppliers aren’t exactly happy to be paying them. (This typically private tension bubbled up to a public crescendo during COVID).
So what possible rationale could the province of Ontario have for introducing prohibitions into this corner of the retail sector? Well, the AGCO held a consultation with the sector about this prohibition over the summer, where they cited the following rationale for its existence in the first place: “addressing the illicit market, which includes promoting consumer choice and a level playing field in Ontario’s legal cannabis industry.”
The promotion of a level playing field is typically thought of as the domain of the federal government through the enforcement of competition policy. But, as our foray into the niche world of cannabis policy demonstrates, sometimes the provinces decide to get into the mix as well.
In this case, it appears to be towards the goal of protecting smaller retailers and Licensed Producers, who would otherwise be at a disadvantage compared to their bigger, better funded competitors to participate in the game of ‘listing fees’. It seems Ontario cares about protecting a dynamic cannabis sector that doesn’t rapidly consolidate and lead to a few dominant players.
Lest you think Ontario’s the only one playing in this space - it appears it’s not alone in wanting a diversity of pot purveyors. Alberta’s equivalent cannabis regulator, the Alberta Liquor, Gaming and Cannabis (AGLC) has similar prohibitions. So does British Columbia, in their Handbook to retailers.
Given that the provinces have a demonstrable role moderating competition in the cannabis sector, perhaps there are other areas of opportunity to integrate a competition-relevant lens into policy. A tighter linkage to consumer protection would be one beneficial area. Another opportunity space is labour policy. Dismissing the possibility of a role for the provinces in beefing up Canada’s competition regime ignores the fact that we have a real-time case study of fed-prov interplay.
🏛️regs
Though open to interpretation and difficult to prove, cannabis law has a regulation prohibiting retailers from getting kickbacks/incentives to increase sales. The intention is to promote a “level playing field.” It embeds a competition lens to provincial legislation.
💰 riches
Other retail space - like the grocery sector - actively “dings” retailers with additional charges like shelving/slotting fees. This increases the cost for smaller retailers.
👩🏽⚖️ I’ll be speaking at the Canadian Bar Association’s Competition Law Fall Online Symposium on Tuesday on a panel discussing Competition Law, Policy, and the Digital Economy. Maybe see some of you there?
A Facebook whistleblower delivered scathing criticism of the company; calling it “morally bankrupt” for putting profit over the safety of users, including children. Last weekend’s CBC’s Conversation Panel discussed what the testimony means for the future of the company and its users - I was on w/ Phil Dwyer.
Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program and a Public Policy Forum Fellow.
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